Corbett Supports Landmark Legislation for Pension Reform

Harrisburg –Governor Tom Corbett today joined Senator Mike Brubaker (R-Lancaster) and Representative Chris Ross (R-Chester) as they introduced a comprehensive pension reform plan that stems skyrocketing pension costs and provides significant taxpayer and budgetary relief for Pennsylvanians, now and well into the future.

The legislation mirrors the governor’s proposal introduced during his February budget address.

“I commend Senator Brubaker and Representative Ross for their leadership in supporting Pennsylvania taxpayers through pension reform and I strongly encourage the legislature to follow suit,” Corbett said. “New calculations show that our unfunded liability has risen to a staggering $47 billion; we can no longer ignore our debt to Pennsylvania. We must take action now.”

Without reform, the governor’s budget office has calculated that pension costs will consume approximately 60 percent of all new general fund revenues in the 2013-14 fiscal year.

“This legislation ensures the pension system is sustainable for the future and implements critically-needed reforms in both the short term and long term,” Brubaker said.

Due to rising pension costs, more than one-third of Pennsylvania’s school districts have applied for exceptions to increase property taxes above the school district’s established index.
“Pennsylvania’s pension funding situation is quickly reaching a crisis,” Ross said. “Something must be done soon to bring these costs into line. Failure to do so would not only be irresponsible, but would threaten our schools and the state’s ability to meet its obligations.”

With reform, school districts and local education agencies would realize savings of more than $1 billion over five years, nearly $140 million in 2013-14 alone.

The legislation rebalances the state’s obligations to both pension funds and the general fund. It also provides short-term budgetary relief to avoid deep cuts in core services and programs offset by long-term reforms that produce an overall savings to the pension systems.

The legislation:
• Contains no changes to current retiree pensions.

• Keeps current employees and retirees in the same type of retirement plan, a defined benefit plan.

• Respects current employees by protecting retirement benefits already accrued and allowing contribution flexibility to opt out of future benefit recalculations.

• Automatically enrolls new employees in a defined contribution plan, starting in 2015.

o State Employees’ Retirement System, or SERS, employees hired after Jan. 1, 2015
and Public School Employees’ Retirement System, or PSERS, employees hired after
July 1, 2015 will be enrolled in a 401(a) defined contribution plan, similar to a
401(k) plan. Consistent with the plans today, state employees will be required to
contribute 6.25 percent of their salary to the plan, while public school employees
will contribute at least 7.5 percent.

• Recalculates future benefits only for current employees through:

o Capping how much of current employees’ future wages and overtime can be used
to calculate their pensionable income, helping to prevent excessive retirements,
and ensuring that the pension reflects an employee’s entire career and not just a
few years where he or she may have earned more overtime or higher pay; and

o Fixing the formula to adjust the way that monthly pension benefits are paid out if
an employee takes a lump sum payment when leaving employment, preventing
employees from getting more money than their pension earned when they retire.

• Limits the amount by which the state’s employer contributions can be increased to provide short-term budgetary relief.

Corbett, Brubaker and Ross were joined for the announcement by Sen. Scott Hutchinson (R-Clarion), Sen. Pat Browne (R-Lehigh), Rep. Brad Roae (R-Crawford), Rep. John McGinnis (R-Blair) and Rep. Fred Keller (R-Snyder) as well as stakeholder organizations representing local school districts, small and large businesses, and policy and financial industry leaders.

For more information about the pension crisis in Pennsylvania, visit www.pa.gov.

Legislation will be available on www.legis.state.pa.us.